COVER STORY National Energy Guarantee: lots of smoke, but no coal-fired power

by Jeremy Barth

News Weekly, November 4, 2017

In “Green energy push has left us blowin’ in the wind,” (October 7),[1] News Weekly argued that an Australian Lower Energy Prices Policy (ALEPP) was urgently needed to boost Australia’s flagging economy, which is being held back by soaring energy prices – a major contributor to unsustainable rises in the costs of living and doing business.

This policy would be an essential driver in reviving investment and output in Australia’s agricultural, manufacturing and services industries, thus playing to Australia’s strengths in sectors where it has long-standing expertise and international comparative advantage.

ALEPP would do so by reversing state and federal government policies designed to shift investment away from fossil-fuel derived, 24/7 base-load power, to intermittent, renewable wind and solar power, making it economic once again to provide continuous, reliable and low-cost power generated from Australia’s abundance of high-energy output fossil fuels.

ALEPP would also do away with the myth that the shift from base-load to renewable sources of energy was an inevitable consequence of economic and technological progress – a product of “engineering and economics, not ideology”, as Prime Minister Turnbull and Environment and Energy Minister Josh Frydenberg like to say.[2]

This belief, held by the leadership circles of the L iberal, Labor and Greens parties, wilfully ignores the fact that state, territory and federal government energy policies have been substantially driven by “green energy” ideology, which has resulted in Australians now paying some of the highest power prices in the world.[3]

In this light, it is unsurprising that the national energy policy – the National Energy Guarantee (NEG) – that Turnbull and Frydenberg released on October 17 did not deliver on any of the key ALEPP objectives.

Unlike the clear and unambiguous goals of the ALEPP, the NEG has the irreconcilable aims of reducing energy prices and ensuring reliability through the purchase of a yet to be determined amount of reliable, lower-cost base-load power; while at the same time meeting Australia’s commitments under the 2015 Paris Climate Agreement by mandating the purchase of intermittent, higher cost renewable power.[4]

Confusingly, the NEG actually consists of two separate guarantees, which reflects the inherent contradiction at the heart of the policy:

Reliability guarantee: Energy companies selling plans to households and businesses would be required to purchase base-load power to cover a yet to be determined amount of their forecast high-demand periods: that is, these companies will not be able to purchase renewable energy exclusively, given its intermittent nature.

Emissions guarantee: These same energy companies would also be required to purchase renewable power at yet to be determined levels to meet Australia’s Paris Agreement targets.[5]

The Government estimates that renewable energy sources will eventually provide 28 to 36 per cent of all power, which is significantly higher than the Coalition Government’s current legislated target of 23.5 per cent, and within reach of the Labor Party’s policy of a 50 per cent renewable energy target.[6]

This de-facto new renewable energy target (RET) is clearly at odds with the first key initiative of the ALEPP, which is to abolish the RET, and oppose the introduction of a clean energy target (CET), or any such policy mechanism designed to incentivise more expensive, intermittent sources of renewable energy over cheaper, reliable base-load energy.[7]

The NEG also makes no clear recommendation to prioritise the building and commissioning of new 24/7 base-load power stations to meet projected short-term shortfalls, as well as support medium to long-term population growth and economic development.[8] Given Australia’s population has grown 75 per cent since 1975 and 200,000 new immigrants arrive every year, the demand for continuous, reliable and affordable power will only grow if the status quo holds.[9]

With the retention of Australia’s commitment to meeting its Paris Agreement targets incorporated into the NEG, the myth that the shift from base-load to renewable sources of electricity is “inevitable”, and cannot be challenged on social, economic or political grounds is further perpetuated.

Consequently, the National Electricity Market (NEM) will continue to operate little changed from its current form as a “business as usual” means to trade increasingly scarce fossil fuel-derived base-load electricity and intermittent renewable electricity.

The NEM would not be re-positioned to act as a National Electricity Reserve (NER) to ensure continuity of supply only in emergency conditions, as recommended in the ALEPP.[10]

This will lead to individual states and territories whose governments are chasing “green” and “progressive” votes continuing to have the ability to under-invest in providing adequate base-load power in the hope that other states or territories will. Not only will households and businesses have to pay more for renewable power, when base-load power is required during peak periods, it will naturally be bought at peak prices.

Significantly, the NEG will do nothing to fix a major factor that prevents the NEM in fulfilling its role “to balance supply and demand for power using the most economic resources available”.[11] The NEG will not tackle the long-term agreements made by state governments to buy output from new wind and solar plants ahead of base-load power. These long-term agreements have been a big factor in driving investment in renewable power ahead of base-load.[12]

Finally, the NEG does nothing to secure access to natural gas at reasonable prices for households and businesses by incentivising state and territory governments to develop their onshore and offshore gas resources, as well as reserving a portion for domestic usage, as Western Australia already does.[13]

With such little change from the status quo, the Government has projected that household power prices will fall by an estimate of only $100 to $115 a year, or about $2 a week, and only after 2020, when the NEG is scheduled to take effect. No estimates on the cost savings to businesses have been provided to date.[14]

Given that the policy is based on achieving a de-facto renewable energy target of 28 to 36 per cent and that the future prices of renewable energy cannot be guaranteed, even these minuscule savings may never materialise.

The National Energy Guarantee is not the national energy policy Australia urgently needs. It does not shine a light on the country’s energy requirements, and how this is best fulfilled by using its abundant reserves of fossil and nuclear fuels to generate power at prices that will reliably satisfy household demand, and be affordable enough to encourage business investment and expansion.

Furthermore, its confusing dual-guarantee structure lacks political clarity and is opaque to anyone other than bureaucrats, lawyers, and energy company executives. As a result, Australians will have to rely on good memories and a sturdy calculator three years from now to judge whether the National Energy Guarantee delivers on its promises.